Each company has a limited number of buyers who can purchase its goods. What if the company has reached the limit? Obviously, in such a situation everything is to be started from scratch: the company should offer, perhaps, the same product but based on new technology as changing just “the wrapping” does not work anymore. General Motors has approached its limit.
History of General Motors
In 1903, on the initiative of William Durant, General Motors was created. The reason for its creation was a possible rivalry between Olds Motor Vehicle Company and Buick. But instead of fighting over clients, the companies merged into one and the started acquiring other producers.
For example, in 1909, General Motors acquired Cadillac and Oakland (nowadays known as Pontiac), then – Chevrolet and the Canadian McLaughlin Motor Company, then – several other minor car producers.
Having captured a part of the US market, General Motors switched to the world market. Somewhere it built new plants, somewhere simply bought local brands. The company increased its presence in various regions. However, the larger it became, the harder it was to manage it; moreover, not in all regions the work was profitable. For example, the company remained losing in Europe for 16 years and lost 15 billion USD there.
In the end, the size of the company caused not the growth of its profit but the growth of its losses and expenses. GM needed a manager who would cut down on the expenses and get rid of losing production. And such a manager was found.
In 1992, Jack Smith stood at the wheel. In 4 years, he closed 24 plants and fired 65,000 employees; these actions not just saved the company but let GM cover up for the losses of 23 billion USD and earn a net profit of 2.47 billion USD, which later grew to 6.88 billion USD.
However, as soon as things got better, the company started to extend again; unfortunately, it has come to a point where it needs to cut down on the expenses one more time.
Restructuring General Motors
After going bankrupt in 2009 and carrying put an IPO again, the company started getting rid of losing production and partnerships.
- In 2012, an assembly plant in Bochum, Germany was closed; then in 2013, the company announced that it leaves the European Chevrolet.
- In 2015, GM left the Russian market and stopped producing cars of the GM brand in Indonesia.
- In 2017, GM stopped selling in India and producing in South and East Africa.
- In 2018, the company sold the Vinfast brand and stopped production in Vietnam. Then it stopped selling the Chevrolet brand in Indonesia.
In the first months of 2020, the company announced that it stopped selling Chevrolet on the domestic market of Thailand and sold its Thai plant to Great Wall Motor Co Ltd. The last stage of the decrease of the GM presence on the world market was the end of selling, designing, and engineering in Australia and New Zealand.
This decision harmed a famous Australian brand Holden that has existed for 160 years. Now its existence fully depends on GM that makes it clear that the production of these cars may stop soon.
This way, the company got rid of unprofitable enterprises and left the countries where rivalry was tough, concentrating chiefly on the US market.
General Motors strikes
The restructuring was not painless for the company. Firing thousands of employees and closing plants led to strikes and down-time in production which cost GM 3.6 billion USD a year, 2.6 billion USD of which was lost in the 4th quarter of 2019.
As a result, the company ended the 4th quarter of 2019 with a loss of 194 million USD. To compare, in the same quarter of 2018, it had a net profit of 2.044 billion USD.
A strike that lasted almost 2 months was also one of the reasons for a decrease in car sales which amounted to 8% last year.
However, all this is in the past. Now GM has become several times smaller, it kept its efficient production powers; however, this is not enough to go on working with a profit. The company has to aim at producing electric cars.
First electric car of General Motors
Anyway, why have all car producers rushed at making electric cars? In fact, they were invented long ago.
For example, GM produced its first experimental electric car Impact in 1990, and 6 years later, a serial electric car General Motors EV1 appeared. It was produced in 1996-1999. However, it never went on sale. Produced lots of electric cars were given to companies that gave automobiles for rent. The reasons for which further development of electric cars stopped remain unspecified.
However, in 2006, a documentary called “Who Killed the Electric Car?” appeared; in it, it was shown how many opponents the technology had at that time.
In particular, the ones to blame were oil companies and the US federal government.
The poster to the movie also hinted at the main enemy of electric cars. In short, car producers had the technology but its development had been hampered until Elon Musk and his Tesla appeared. After that, the development of electric cars became unstoppable.
Increased demand for electric cars indicates that consumers are a-waiting, they are ready for a change. And now, world car producers are hurrying to take the niche, having missed at least 10 years.
In fact, they have little choice now: either they produce electric cars or go bankrupt soon.
They have been developing the technology of the piston combustion engine for 200 years already. All those companies were doing was bringing the design to perfection, increasing the coefficient of efficiency. But at present, even the simplest and youngest electric car leaves far behind its experienced and perfected rivals on the combustion engine.
General Motors reviving Hummer
So, now we have found ourselves in a situation when car producers are hurrying to restructure their work, counting on electric cars. Only, Tesla has already left them behind. GM is one of the companies chasing it.
As the first step, it announced the revival of the world-known brand Hummer the production of which stopped in 2010.
Planned characteristics of electric GMC Hummer EV include 1,000 horsepower which will help the heavy offroadster speed up from 0 to 100 km/h in 3 seconds. To compare, the world quickest car on the combustion engine Koenigsegg Agera RS with a streamlined body speeds up from 0 to 100 km/h in 2.8 seconds.
The start of the production of Hummer EV is scheduled for autumn 2021; sales will begin the same year.
A step-by-step decline in the world sales of cars on the combustion engine made the company’s management plan to stop the production of such cars by 2030 and fully switch to electric engines.
The next model to get rid of the combustion engine will be Cadillac.
Does GM have a chance to keep up with Tesla?
It is 2030. Imagine which level of development Tesla will have reached by then. Does GM have any chance?
In fact, it does. In 2019, Tesla sold 300 thousand cars. The Plant in China will let it increase production by 500 thousand cars a year. If the increased demand preserves, it will sell 800 thousand cars next year.
Let us imagine the company will build another plant in Germany in a year. Anyway, this perspective is highly questionable as local activists sued Tesla for forest clearing, and the construction is suspended this year. Anyway, let us be optimistic and imagine the plant has been built. This will allow the company to bring production to 1.2 million cars a year. However, if we compare the current world sales of GM that were over 7 million cars last year, it becomes obvious that Tesla needs at least 5 more years to reach the same level.
The advantage of GM is its production capacity that will allow decreasing the prime cost of cars; another advantage is making a net profit – this money can be used for the development of electric cars. If we exclude the 4th quarter that suffered from the strike, the average quarterly profit of GM in 2019 will amount to 2.283 billion USD, which means the company is in no financial need.
The partnership of General Motors and LG Chem
In December 2019, it became known about the partnership between GM and LG Chem. The companies are creating a shared enterprise that will produce storage batteries for cars. This is another step to decreasing the prime costs of electric cars.
The problem might emerge in the lack of qualified professionals that will develop new technology and the use of artificial intelligence for the autopilot. However, in Tesla, engineers work to the point of exhaustion, and such cases when valuable employees left the company for other producers are not rare. That is why I do not think that this issue is worth worrying about.
What to do with GM stocks?
The trader always faces the choice of whether to buy GM stocks or not. On the one hand, the decrease in world sales, massive escape from the world markets, and the closing of plants. On the other hand, the company is switching to the production of electric cars, which is a promising niche; it has production capacities and money for development. However, the first results will appear no sooner than the next year. Anyway, investors always go ahead of the time, so the next year it might be too late to buy the stocks.
To find an answer, we need to check what other investors are doing. We should turn to the tech analysis and see what trend there is in GM stocks.
Tech analysis of General Motors
Currently, the stocks are trading in a short-term downtrend, which is indicated by the 200-day Moving Average going above the price. Another factor supporting further decline is the declining channel which the stock is trading inside. The Stochastic oscillator has also escaped the overbought area and is going down.
So, in the current situation, we should expect the price to decline to 31 USD, from where we may expect it to recuperate.
However, the situation can change abruptly if the price breaks out 36 USD. In this case, the price will escape the descending channel and trade above the 200-day MA. This will signal the growth to the nearest resistance level at 40 USD. Later, this growth will help an uptrend to form, which will make the stock price grow further.
Currently, General Motors is restructuring, switching to the production of electric cars. So, the company is not in the best state of affairs. However, this stage will end soon.
Elon Musk is using the moment while large clumsy car producers are switching to the production of electric cars very slowly. If they enter the market, the rivalry will be tough. Time will show if General Motors will be able to win its part of the market. All we can do now is to keep an eye on the stocks of the company and be ready to act as soon as we notice any hint on the future growth.